What State must get right in affordable housing scheme

The government recently announced it is seeking to develop 500,000 units of affordable housing as part of the Big Four agenda.

It also said it seeks to extend affordable mortgages for as low as seven per cent, facilitated by the Kenya Mortgage Refinancing Company (KMRC). Reports indicate that KMRC has secured financing from the World Bank and the African Development Bank which have allocated Sh16.1 billion and Sh15 billion respectively.

Several factors ought to be considered if the affordable housing intent is to translate into home ownership for low-income earners (this piece draws from an article by Dr Mbui Wagacha in the Business Daily on April 4, 2018).

Firstly, the criteria of who qualifies for affordable housing and related loans needs to be crystal clear. It is important that government present granular details of and rationale for the specific criteria that need to be met to be eligible for the scheme. Ideally, the target should be low-income households currently living in informal settlements.

Once the criteria is established, government should develop a database of all individuals who qualify for the scheme. A system can then be set up where once housing is available, individuals are randomly chosen from the database and granted the houses and linked loan facilities. This can be coordinated through an Affordable Housing Authority.

Secondly, government needs to invest in both sides of the housing market. The demand side is being addressed through the creation of KMRC and subsidised mortgages.

Finding the right financial partners to deploy the mortgages will be crucial and here, Savings and Credit Cooperative Organisation (Saccos) ought to be brought in strategically.

Saccos and cooperative networks currently already provide 90 per cent of mortgages in the Kenyan housing market, invariably at more affordable rates than commercial banks.

Government should actively pull in and incentivise saccos to deploy the subsidised loans to leverage the latter’s knowledge of lending to the housing market affordably and thereby penetrate lower income markets.

READ: How State plans to deliver 500,000 homes in five years

Linked to this, there ought to be a strategy to finance the construction of affordable homes.

This can also be deployed through saccos, so that the interest charged on construction loans remains at manageable levels and does not push up home purchase prices.

Further, domestic firms ought to be actively engaged to bid for construction tenders, and requisite support to ensure project by domestic firms is prioritised.

Thirdly, an affordability strategy ought to be developed to comprehensively address the issue of land prices.

Land currently constitutes the lion’s share of home prices especially in urban and peri-urban areas, which is where most of the affordable housing ought to be constructed.

Government can provide the land at no cost as part of the scheme such that the prices of homes only feature the cost of construction; this will drastically bring down prices.

Finally, conditions of resale of affordable houses have to be specific and stringent. If individuals in the scheme seek to sell their house, they can only sell back to the housing scheme itself; no third party ought to be allowed to buy the affordable homes.

If these measures are not taken, unscrupulous investors will target the affordable homes, offer individuals great deals and mop up all the houses through re-sale, thereby defeating the intent of the scheme.